Upon enrollment, plan participants are effectively defaulted into a managed account platform that measures individual retirement goals, investment horizons, and risk tolerance, among other factors. Like incumbent managed account platforms, an individualized allocation strategy is devised, and periodically rebalanced to harmonize with tailored investment goals.

But unlike incumbent managed accounts, or for that matter, the vast majority of 401(k) recordkeeping platforms, Betterment's participants are invested exclusively in nonproprietary, low-cost exchange traded funds.

In building portfolios strictly on exchange-traded strategies, Betterment is able to offer participants a technology-driven managed account solution at a low cost: Plans with at least $1 million in assets are not charged upfront fees, and participants pay between 10 and 60 basis points annually, depending on the size of the plan.

Betterment does not separate the amount of 401(k) assets under administration from the $5.2 billion under advisement throughout retail and institutional channels, said Loh, a CFA whose background includes health care tech start-ups, as well as senior business development roles at Berens Capital and Pimco.

Many of the early adopters of Betterment's 401(k) platform are technology and health care start-ups, but Loh says more professional services firms, and sponsors across industries, are now counted as clients.

One small physicians group recently converted its existing 401(k) plan to Betterment, citing cost efficiencies and the platform's extent of advisory services as reasons.

"We definitely have a good presence in health care and tech companies but we're not at all limited by industry — our goal is simply to get as many people as we can properly prepared for retirement," said Loh, GM of Betterment for Business, pictured at right.

That means accepting new plan sponsors, which most likely will have limited, if any retirement assets to invest, along with converting plans from existing platforms. In the first three months of the year, conversion plans represented 15 percent of Betterment's new clients.

But in the last three months there has been a marked uptick in converted plans — 40 percent of new business in that period is from sponsors with existing 401(k) plans, said Loh.

To date, the largest plan by assets on the platform is $15 million; by participants, it is roughly 600. Average 401(k) account balances are also not broken out, but for the entirety of the Betterment universe, including the retail channel, the average balance is $30,000.

A pivot in distribution strategy

When Betterment announced the incarnation of Betterment for Business in September 2015, company founder and CEO Jon Stein told BenefitsPro, "we think what we've built is how all retirement plans should work, and someday will."

Beyond the efficiencies of exchange-traded funds, particularly for investors with longer investment horizons, and an easily interpreted fee-mode l— "the 401(k) market isn't known for pricing transparency" — Stein said the quality of the technology, and the extent of individualized advice it delivers, would set Betterment's model apart from the existing registered investment advisor model.

"Very rarely are participants getting direct advice under the existing RIA model," said Stein. "They may provide a good selection of funds, but they don't tell you which ones to pick."

One reasonable inference from Stein's explanation was that Betterment was planning to only sell directly to sponsors, and circumvent existing advisory channels as a means of distribution.

If that indeed was the distribution strategy last September, it has since changed.

Betterment's first 50 clients resulted from direct relationships with sponsors, said Loh.

But in the past two months, Betterment has been developing relationships with advisors, which helps explain the uptick in converted 401(k) clients of late.

Without a trace of defensiveness, Loh takes issue with the characterization that Betterment never intended to distribute its platform through advisory channels.

"We are still at the very beginning of this process," she said. "When we launched the platform at the beginning of the year, we weren't sure what distribution would look like. I don't think it was a change in strategy as much as it was us identifying a new area of focus."

Loh calls the inclusion of advisors into distribution planning a "healthy evolution."

Naturally, some advisors will push back against the Betterment model, which, as a 3(38) fiduciary, assumes the responsibility of choosing investment options for participants — a key value proposition and service that existing fiduciary advisors deliver for sponsors and participants.

"There are good advisors that believe in their fund selection capabilities and investment models, and those services are valued in the market place," said Loh. "And we value that, but we don't offer it because we still believe that model is going away."

Indexed-only investing, but for how much longer

Loh said Betterment is committed to the value proposition of building automated retirement portfolios on indexed investments.

But that commitment has been met with some resistance. Loh says she and her team have encountered two reasons from sponsors on deals that have not been closed: one, the company is perceived as too new; and two, some sponsors are concerned by a lack of choice within the exchange-traded fund-only platform.

"From a product standpoint, we are always measuring feedback," said Loh, who suggested the potential for a brokerage window "down the line," while maintaining her, and her boss' faith in Betterment's vision for low-cost investing. "We don't want to be all things to all people," she added.

For a company like Betterment, "down the line" is a relative clause.

"I don't know exactly where we will be with our investment offering, but when we move, we move quickly — that's an advantage of being a small, nimble player. Once we prioritize, we execute," she said.